My Colorado Home Mortgage Rate is about to adjust. What does that mean and what should I do?

The full impact of a Colorado Home Mortgage that has an adjustable rate tied to it really depends on the type of Colorado Home Mortgage you have. The most popular adjustable rate programs used over the last six years were the subprime loans. These Colorado Home Mortgage Programs were designed to get high risk borrowers into homes at a rate normally just low enough to qualify. The adjustable rate period for these loans ranged from 2 years to 3 years. They are known in the mortgage business as two/twenty-sevens or three/Thirty-eights. They were designed to adjust every 6 months until the rate hit the market cap rate, which is around 11%. Pretty scary for anyone that currently has these Colorado Home Mortgage Programs. These loans are designed so that you have to refinance after the 2 or 3 year grace periods. If you do not refinance your Colorado Home Mortgage, you can expect your rate to jump up 2% every 6 months until it hits that Market Cap rate. So if you had a 5% rate on this loan it would jump up to 7%, 9%, 11% respectively over time.

The 2nd type of Adjustable Rate Mortgages offered in the market has far less risk tied to it, and as a result, the adjustment periods are a bit friendlier. FHA and Conventional A-Paper Colorado Home Mortgage programs have an Adjustable Rate Mortgage Option. These Rates typically adjust only once per year and will not exceed 1% per year during that time. This option will give most Colorado Home Mortgage clients the ability to refinance when it makes sense to them. For example, we have several clients that got into an ARM Colorado Home Mortgage program at 3.875%. This is a great rate and they have it locked for 5 years. In year 6 that Colorado Home Mortgage will be set to adjust. The adjustment can only go up 1%, therefore making the highest rate available for that year set at 4.875%. That rate is still better then the 30 year rate currently being offered. Year number 7 the rate could go to 5.875%, assuming worst case scenario. Again that rate is right in line with what is being offered on 30 year fixed rates.

Much of the publicity circling around adjustable rate mortgages comes from media outlets. These media outlets will only report the most negative aspects of the business. A tornado hits a small town what do you see, 3 trailers hanging from a tree. You know what I am talking about and the point I am trying to make is that you need to understand what type of Colorado Home Mortgage you are getting yourself into. There are benefits from an Adjustable Rate Mortgage when it is done right. Those clients that have been in their house for 5 years at 3.875% will attest to the benefits that they had. There are so many right reasons to do an Adjustable Rate Mortgage, however the biggest wrong reason is for qualification purposes. Many of the subprime lenders now out of business qualified these Colorado Home Mortgage programs with the lower teaser rates in order to get people approved. What they did not do is analyze the impacts created by the adjustment for these buyers. These borrowers were put in a position where they could no longer afford their payments at the higher interest rate levels. This has caused many Americans to fall into Foreclosure status.

So now that we have talked about what the Adjustable Rate Mortgage is, we will focus on what you should do.

Option 1: Refinance Your Home

Utilizing a premier Colorado Home Mortgage broker, you can get access to all programs that are available to you, not just the programs offered by that bank. The most popular refinance for those borrowers that took out a subprime loan is a FHA Colorado Home Mortgage. The FHA option allows for a little more risk then the conventional A-Paper loan option. The Higher risk also allows for a higher loan to value ratio. This is big as most Colorado Home Mortgage programs face home value issues. You do not need much appreciation on your home to qualify. In fact you only need 3% if you have not refinanced before, and 5% if you have. If the rate creates payment obstacles for you and new 5 year adjustable rate mortgage might be the solution. FHA Colorado Home Mortgage ARM products are far less volatile then subprime ARM products. The reason that I recommend the 5 year option as a qualifying option is that it will allow you an additional 5 years to get your current situation back on track. This is the most feasible option available for people who are not happy with the adjustment that is about to take place on their Colorado Home Mortgage program.

Option 2: Let your Rate adjust and continue paying.

I stated above that some adjustments are not bad. Colorado Home Mortgage programs that only adjust once a year at a rate of 1% a year may still offer a lower rate then what the market currently offers. In these circumstances it is best to wait and refinance only when the market hits a low point. Colorado Home Mortgage programs should be designed to meet both your current and future needs. Refinancing should only take place when it makes sense for your long term objectives. Many people looking to refinance their current Colorado Home Mortgage Program do so because it saves them $200 a month today. Then they sell their home a year later. The cost of the refinance will set you back much more then the savings you get over the next year. Your net proceeds from the sell of that house will be far lower then the savings your received from the refinance. So refinancing your Colorado Home Mortgage should only take place when it makes sense to do so. Talking to your Colorado Home Mortgage broker and asking for amortization schedules will help you make that decision.

Option 3: Sell your Home

Not the most popular option, but if you find yourself in a situation where you can no longer afford your payments selling your home will be the best option. Hopefully you have some equity to make the sell of the home complete. However if you are upside down on your home like many of us are, you can also go into a short sale situation. You should contact a professional Real Estate agent to answer your short sale questions. Colorado Home Mortgage loans have been adjusting for many people in a way that makes it impossible for them to continue making payments. Circumstance arise that may have contributed to these obstacles, but putting your home up for sale and eliminating the threat of continued Colorado Home Mortgage rate hikes may help you save money over the long term.

I hope that you found the information helpful, if you are looking for current Colorado Home Mortgage market updates you can check out my market blog at www.coloradomortgagebanking.com/news

I am here to help you and I would be pleased to earn your business. If you are someone you know needs my assistance please don’t hesitate to call me directly. My goal is to be your Colorado Home Mortgage provider for life.

Daniel